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5 Years Since Abrogation of Article 370, J&K's Rising Rs 1.12 Lakh Crore Debt

This includes Rs 69,617 crore in public debt and Rs 43,180 crore in liabilities such as insurance, pension, and PFs.

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Nestled in the northern reaches of India, the Union Territory of Jammu and Kashmir (J&K) has long been a region of scenic beauty and strategic significance. However, behind its picturesque landscapes lies a fiscal narrative marked by escalating debt and burgeoning liabilities. Over the past decade, the economic landscape of J&K has transformed dramatically, with its debt burden swelling to unprecedented levels, posing significant challenges to its financial stability and governance.

In 2019, the abrogation of Article 370 and the subsequent reorganisation of the state into a Union Territory were pivotal events, promising economic rejuvenation and increased investment. However, the fiscal reality has been starkly different. According to the Comptroller and Auditor General (CAG), Jammu and Kashmir’s debt has surged to Rs 83,536 crore as of the last fiscal year, reflecting an alarming trend of fiscal imprudence and structural economic weaknesses. This exponential growth in debt highlights the chronic fiscal challenges faced by the region.

The financial year 2022-23 alone saw J&K's total liabilities skyrocket to Rs 1.12 lakh crore. This includes Rs 69,617 crore in public debt and Rs 43,180 crore in other liabilities such as insurance, pension, and provident funds. These figures not only underscore immediate fiscal challenges but also highlight the long-term financial commitments that the region must manage. 

Adding to the complexity, the debt-to-GDP ratio of J&K is projected to reach a precarious 51% by 2024-25, significantly higher than the fiscal prudence norm recommended for Indian states. This escalating debt burden reflects deep-rooted issues, including limited revenue-generating capacity, high expenditure commitments, and insufficient economic diversification.

Addressing Jammu and Kashmir's debt crisis requires a multifaceted approach that goes beyond immediate financial aid. Sustainable economic strategies, efficient debt recovery mechanisms, and transparent fiscal management are essential to reversing current trends.

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The Government's Response

To alleviate some of this financial burden, the central government has stepped in with substantial support. Recently, J&K received Rs 7,900 crore from the Union government to clear dues with J&K Bank. This injection of funds is part of the Rs 42,277.74 crore allocated to the region in the 2024-25 Union Budget, aimed at bolstering the financial health of the bank and ensuring the smooth disbursement of pensions, salaries, and other essential expenses.

While this aid provides temporary relief, it underscores the region’s dependency on central government support. This raises critical questions about the sustainability of J&K’s fiscal policies and the need for robust economic strategies to mitigate future financial risks.   

The Supreme Court's Directive: Establishing a Local DRT

The judiciary has also recognised the need for more robust financial governance in the region. The Supreme Court recently directed the establishment of a local Debt Recovery Tribunal (DRT) in Jammu and Kashmir.

This tribunal is intended to expedite the recovery of debts and enhance the efficiency of financial dispute resolutions, addressing a critical gap in the region’s financial infrastructure.   

By curbing non-performing assets (NPAs) and ensuring timely recovery of debts, the DRT will play a crucial role in stabilising the region’s financial system. This measure is expected to address long-standing inefficiencies in the debt recovery process, which have led to prolonged financial distress for lenders and borrowers.  

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Political Accusations of Financial Mismanagement

In the absence of necessary measures to stabilise the economy, political accusations of financial mismanagement have surfaced. Omar Abdullah, a prominent political leader, has accused the current administration of exacerbating the region's economic woes through poor fiscal policies. He claims that mismanagement and lack of strategic financial planning have significantly contributed to the escalating debt crisis.

“In the 10 years of BJP/NDA rule at the Centre, all Jammu and Kashmir has received is crippling debt. The powers that be love talking about a ‘naya Jammu and Kashmir’ but what they forget to tell everyone is that the only legacy they are leaving for the elected government, when it comes, is one of back-backing interest payments and a financial crisis,” he said in a post on X.   

Abdullah's accusations highlight the political undercurrents that complicate J&K's economic landscape, adding another layer to the region’s financial challenges. These accusations also underscore the need for transparent and accountable governance to restore confidence in the region’s economic management.   

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An Academic Perspective

Academic analyses provide a broader context to the financial issues plaguing Jammu and Kashmir. Research published in academic journals highlights the structural weaknesses in the region's economy, including over-reliance on central funds, lack of industrial development, and the impact of prolonged political instability.

These factors collectively contribute to fiscal stress and burgeoning debt. The academic perspective emphasises the need for comprehensive economic reforms to address these underlying issues. By fostering a more diversified and resilient economy, J&K can mitigate the impact of external shocks and reduce its dependency on central government support. 

Domar's debt sustainability analysis indicates that while debts were unsustainable in the early 2000s, the implementation of the FRBM Act restored sustainability. However, the bifurcation of the state into two union territories and the COVID-19 pandemic has resulted in renewed debt un-sustainability from 2018 to 2021.

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Strategic Financial Management   

Addressing Jammu and Kashmir's debt crisis requires a multifaceted approach. Sustainable economic strategies, efficient debt recovery mechanisms, and transparent fiscal management are essential to reverse current trends.

Diversification of the Economy: Reducing dependency on central funds by promoting local industries, tourism, and agriculture can provide a more stable economic base. By investing in sectors with high growth potential, J&K can create new revenue streams and reduce its fiscal deficit.

Efficient Debt Recovery: The establishment of a local DRT is a positive step, but its success will depend on effective implementation and governance. Ensuring that banks and financial institutions can recover dues efficiently will alleviate some of the fiscal pressure. The DRT must be adequately staffed and equipped to handle the volume and complexity of cases to ensure swift and fair adjudication.

Transparent Fiscal Policies: Addressing accusations of financial mismanagement requires transparency and accountability in fiscal policies. Implementing robust financial management practices and ensuring political stability are critical to restoring confidence in the region's economic governance. Regular audits, public disclosures of financial transactions, and stakeholder engagement are essential components of transparent governance.

Infrastructure Development: Investing in infrastructure can spur economic growth and create job opportunities, contributing to a more robust economic framework. By improving connectivity, enhancing public services, and modernising infrastructure, J&K can attract investment and foster sustainable development.

The debt crisis in Jammu and Kashmir starkly highlights the region's intricate financial challenges, which cannot be resolved solely through central funding and governance. Following the abrogation of Article 370, the financial strain has intensified, exacerbating economic difficulties in the region. As the ramifications of debt resonate throughout Jammu and Kashmir, coordinated efforts from the central government, local administration, judiciary, and political leaders are imperative to steer through this fiscal quagmire. Sustainable economic strategies, transparent governance, and effective debt recovery mechanisms are crucial for addressing these issues.   

(Kanwal Singh is a policy analyst from J&K. This is an opinion piece and the views expressed are the author’s own. The Quint neither endorses nor is responsible for them.)

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